Eagle Bulk Shipping Inc (EGLE) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2008 Eagle Bulk Shipping Inc. Earnings Conference Call. My name is Ann and I will be your coordinator for today's call. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. At this time, all participants are in listen-only mode and we will be facilitating a question-and-answer session toward the end of the presentation.

I would now like to turn the presentation over to Sophocles Zoullas, Chairman and CEO. Please proceed, Sir.

Thank you and good morning. I'd like to welcome everyone to Eagle Bulk Shipping's third quarter 2008 earnings call. To supplement our remarks today, I encourage participants to access the slide presentation that is available on our Web site at www.eagleships.com.

Please note that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and are inherently subject to risks and uncertainties. You should not place undue reliance on these forward-looking statements.

We refer all of you to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results, our performance and our financial condition.

Please note on slide 2, the agenda for the call will follow our usual format. After my opening remarks, I will discuss our third quarter 2008 highlights and provide an update of our fleet and our charter contracts through 2018. I will also discuss recent events in the dry bulk market, both with regard to demand and supply, before turning the call over to Alan Ginsberg, our CFO, who will review the Company's financial performance.

I will then end the management discussion with some concluding remarks before taking questions.

Please turn to slide three. We're very pleased with our record third quarter results, which represent our best financial performance since inception.

During the quarter our net income increased 50% from Q3 2007 to $23.2 million or $0.49 per share. Net time charter revenues also increased 52% to $51.5 million year-on-year. EBITDA also increased 42% to $38.9 million year-on-year. Yesterday we declared a dividend of $0.50 for the quarter.

Finally, we again achieved superior operating performance with a fleet utilization rate of 99.1% for the quarter.

Slide four. Recent events at Eagle Bulk highlight strong across the board execution. Two ships delivered during the last two months as the Redwing delivered in September and the Woodstar delivered in October. The delivery of the Crowned Eagle is on track and we expect to take delivery of the ship later this month.

We also opportunistically extended our charter's default insurance, cover another year to July 2011. Please turn to slide six for a review of our fleet.

The key message in discussing Eagle Bulk's fleet is that our asset class serves today's volatile markets well. As you'll see from this slide our on-the-water fleet is very modern and homogeneous. The shorter length, shallower draft as well as cargo cranes and grabs allows our ships to carry many more cargoes and go to more ports than the larger ships. This flexibility is of particular value in challenging markets when large cargo shipments are reduced and moved in smaller ships, benefiting supramaxes.

As I have said in previous years, supramaxes have the ability to generate more stable and even higher revenues than larger ships, which is what we are seeing today. The inherent flexibility of our ships becomes more desirable to charters during current market conditions.

Slide seven shows a similar profile as our supramax newbuilds are set up in three groups of sister vessels which provide potential revenue opportunities, as well as operating efficiency on the expense side. It's important to note here that these ships were contracted before the big run-up in prices last year, and 19 vessels have long-term charters including 12 that have charter commitments through 2018.

Please turn to slide eight for a review of our charter contracts for our on the water fleet.

Since inception, we have maintained the strategy of pursuing time charter contracts that provide good revenue stability and visibility to our shareholders. This strategy serves us well, especially when external events to the shipping market, such as the current liquidity crisis, occur. Because of our strategy, we have been able to maintain revenue visibility by chartering 97% of our Q4 2008 capacity and 88% of our Q1 2009 capacity.

We have also maintained our consistent, conservative approach to the charter market and avoided any FFA exposure for the Company.

Please turn to slide nine for an analysis of our 10-year revenue visibility year-by-year. We are currently one of the very few dry bulk companies that can provide decades-long visibility to investors and further reinforces our differentiated, conservative approach to the dry bulk market.

Currently, our contracted revenues exceed $1 billion which helps insulate Eagle Bulk from current market volatility.

Please turn to slide 11 for a discussion of the dry bulk market. This new slide analyzes the sequence of the main events that started at the end of the summer and created the current depressed market. As you have heard us discuss before, Chinese demand for raw materials stalled, beginning with the pre-Olympic preparations as China curbed industrial production to lower pollution. And anticipated recovery in the dry bulk market never occurred as the unprecedented credit crisis that started in the US quickly spread around the world and froze [intrabank] lending.

This significant development stopped banks from trusting each other and prevented the issuance of letters of credit necessary for global trade. Some cargoes continued to ship under all letters of credit but by October, new cargoes were waiting at load-ports unable to ship because banks would not issue new letters of credit. Lack of credit had a domino effect by essentially freezing sales and purchase activity, with no dry bulk ship sales trading in any asset class.

Additionally, financial players which gave liquidity to the FFA paper markets stopped trading due to their internal problems with their investment portfolios. Lack of liquidity, due to lack of credit, which prevented dry bulk cargoes from moving had a follow-on effect of reducing demand for commodities such as steel.

As a result, Chinese steel production slowed and iron ore inventory levels remained high at 50% above 2007 levels. All of this was exacerbated by the September standoff between the Chinese [invalet] who tried for a mid-contract 12% increase in iron ore.

So the key question is, where are we now? Well, governments around the world began instituting emergency financial programs to inject capital into banks and force them to lend. Governments are also taking actions to stimulate the global economy. However, it is too early to gauge the success of all of these programs.

Slide 12. On October 20th, China's State Council met and policymakers introduced a stimulus package to counteract economic slowdown. First, new infrastructure projects were approved for highways, airports and nuclear power stations.

Second, accelerating reconstruction will be supported by the three-year post-earthquake effort which is currently budgeted at around $150 billion. It is important to point out that this reconstruction effort will increase demand for supramax cargoes such as cement and steel.

Third, the Chinese government recently planned to significantly increase the budget for railway investment by approximately $100 billion to almost $300 billion and build 17,000 kilometers of rail, an additional 5,000 kilometers from the original plan to add 12,000 kilometers of rail.

Lastly, China's systematic infrastructure investment program which started with Tier 1 and then moved to Tier 2 cities now will include rural development, such as building irrigation systems and roads to more remote areas.

Slide 13 demonstrates the flexibility of the supramax vessel as our ships moved back into protected sub-panamax trades when the market conditions became more volatile in September. In fact, we carried as much or more cement, [fuels] and various other minor bulk cargoes during Q3 as we did during the first half of this year. This is a very important characteristic of the supramax asset class and helps explain why these ships are currently the best performing vessel type in the dry bulk market.

Slide 14 is the same analysis as the prior slide, it represents cargo movement for the first nine months of the year. The key message on this slide -- as you can see from the diverse list of commodities we carried during this period -- is that charters are attracted to the versatility of these ships.

Please turn to slide 15 for an update of the dry bulk supplies statistics through 2013. Before I begin a review of this slide, I would like to qualify my remarks by stating that we believe the dry bulk order book is in a current state of flux, as we are receiving constant updates from our market sources that there is a significant cancellation of contracts occurring. Our current estimates are that there have been between 150 and 200 cancellations so far. These cancellations are not reflected on slide 15.

We expect to have a more accurate read of the order book by the time of our next call. That being said, capesizes continue to be the largest part of the order book with the youngest on the water fleet. We believe that supramaxes will benefit more than larger ships during the current market weakness as almost 1/3 of the current Handymax fleet is over 20 years old. And we are receiving reports that scrap yards in India and China are receiving a significant number of requests to purchase older ships for demolition. Once liquidity returns to the market, we believe demolition will start in a meaningful way.

Please turn to slide 16 for a more in-depth analysis of shipyard cancellations, which would lead to fewer ships for global demand. Upon closer analysis of the Handymax market only 42% of all global Handymax orders are being built at established shipyards. This means that 58% of global Handymax orders are potentially at risk today.

Additionally, as we have said to the market before, many ship orders were placed without bank commitments. As there is currently negligible lending activity, we expect many of these ship orders not to be realized.

From the shipyard side, there are currently many ship contracts that are contingent on refund guarantees being issued for projects to start. The lack of banking liquidity will also make it harder for refund guarantees to be issued, which will also put pressure on these contracts and put them at risk as well.

Lastly, we believe the building bottleneck of ships awaiting demolition will be cleared once banks resume issuing letters of credit.

I would now like to pass the call to our CFO, Alan Ginsberg, who will now provide a financial overview of the Company.

Thank you, Soph.

Slide 18. I would like to offer a brief recap on our quarterly and nine months results of operations. As Soph mentioned earlier, Eagle had its best quarter ever. Net revenues for the quarter were $51.6 million, a 52% increase over 3Q '07 figure of $34 million. All vessels were in time charter during the quarter.

EBITDA, as adjusted for exceptional items under the terms of our credit agreement, was $38.9 million for the quarter, an increase of 42% over 3Q '07 figure of $27.4 million. Net income was $23.2 million or $0.49 per share for the quarter, an increase of 50% over 3Q '07 of $0.37 per share.

Net revenues for the nine months ended September 30th were $125.5 million, a 41% increase over the nine months ended September 30, 2007 figure of $89.2 million. EBITDA for the nine months was $94.2 million for the nine months ended, a 32% increase over the nine months ended September 30, 2007 figure of $71.5 million. Net income for the nine months was $52.5 million, a 46% increase over the nine months ended September 30, 2007 figure of $35.9 million.

Finally our utilization rate for the quarter was 99.1% and 99.6% for the first nine months of the year.

Slide 19. I just want to offer a few comments on our 3Q '08 balance sheet. As of September 30th, 2008, our total bank debt is $742 million. We have swapped out 100% of our current debt through 2009 and the weighted average effect of interest weight for the third quarter was 5.32%, inclusive of our 95 basis point margin.

Slide 20. Next, I would like to spend a few moments going over our expected cash costs for the remainder of the year, which we estimate at a total of $9400 per vessel per day.

Please note we have not changed these figures from the last quarter.

Our estimated interest expense, net of interest income is $2200 per vessel per day. Our estimated daily vessel operating cost is $4704; technical management fees paid to our vessel managers are estimated at $296 per vessel per day. Our estimated general and administrative expenses for the second half of 2008 is $1650 per vessel per day.

Finally we estimate that our dry-dock cost is $500,000 once every 30 months, which equates to $548 per vessel per day.

With that I'll turn it back to Soph who will complete the presentation.

Thank you Alan. In conclusion, Eagle Bulk is well-positioned for today's volatile markets. Our conservative strategy that has been in place since this Company's inception has buffeted Eagle Bulk from the global market's current turmoil. Supramaxes today are proving their resilience in a challenging market as this asset class recently has been the best performing ship type in the dry bulk market.

On the revenue side, we opportunistically extended our fleet-wide charter's default insurance for another year to July 2011. Our consistent chartering strategy delivers revenue stability and visibility while helping insulate the Eagle Bulk from external downdrafts as we currently have over $1 billion of contracted revenues, with 97% of our Q4 2008 capacity contracted and 88% of our Q1 2009 capacity contracted. We also have 12 ships chartered to 2018, which is unique in the supramax market.

Unlike many other dry bulk companies, we also avoided the temptation to trade in the FFA market, which we correctly realized would expose Eagle Bulk to unnecessary risk.

Finally, on the expense side, our vigilant watch over our costs has allowed us to maintain one of the lowest cash break-even levels in the industry, at $9400 a day. In summary, we believe these factors together position Eagle Bulk well for the current market and beyond.

I would now like to turn the call over over to the operator for questions.

(Operator Instructions.) Doug Mavrinac with Jefferies & Company.

Good morning. Just had a few questions. First off, in your commentary, you talked about how the letter of credit issue has really restricted global trade and put downward pressure on the demand for dry bulk vessels. Even though it's a little bit outside of -- actually, it's a lot of bit outside of the shipping industry, have you heard of any anecdotal evidence to suggest that maybe that is alleviating? Or does it still seem to be resulting in more or less a standstill of dry bulk shipments?

I think right now, Doug, and that's -- your question is very good because I think it's the central topic for the dry bulk market today. And you are correct in stating that this is very much outside what normally ship owners have to deal with. In fact, it is the first time I can remember in my career that letters of credit have ever been an issue to dry bulk trade.

That being said, peripherally, we have seen pockets of trade. There's been -- people may have seen Panamaxes picked up a little bit. Supramaxes picked up a little bit, albeit from very low levels.

But I would say, Doug, [might] generally to answer your question on the letter of credit issue, I think it is still early days. It is still a little too early to see the impact of the global stimuli occurring from governments to jump start economies and as a corollary world trade. But we hope to have more visibility in the next couple of weeks.

Perfect. Great. Thank you. Then another kind of topic that has been thrown out there has been counterparties potentially canceling contracts, putting at risk secured revenues.

Can you share with us -- as it relates to Eagle's secured revenues -- if you guys have had any counterparties coming to you asking to have a contract renegotiated and what your answer would have been if someone came to you to suggest that?

Sure. First I can just very clearly state to everyone on the call no one has approached us on any of our contracts. We have been doing this a long time. All of the Eagle management has been in the shipping industry and seen multiple market cycles. And we like to credit that we choose our counterparties very carefully. Which I think should be true of most good owners in today's market.

However, Eagle does have a couple of additional firewalls between charter's attempts to renegotiate and protecting our revenue streams. As people who have been shareholders of Eagle since our IPO, since 2005, know that we were one of the first public dry bulk companies to use third party -- we actually use two third party maritime credit agencies to do real-time continuous monitoring on the health of our counterparties. So that is one thing differentiated that we do that, in addition to management's knowledge of the market and who we do business with, gives an additional firewall and protection to our revenue stream. And I think that is very significant to note.

The other point, which is really almost unique is we -- last year in the summer actually had worked for many months (inaudible) fleetwide charter default insurance product that at the time was fleet-wide and was a three-year policy. I remember in the summer, a lot of people were criticizing us saying, "Why is Eagle spending money on this type of an insurance. It doesn't make sense."

And our philosophy -- as you know, we are a very conservative company -- is to do the right thing, to be able to manage the Company through many different kinds of markets. And if you want to get to a very fundamental answer, you buy the proverbial umbrella when it is sunny not when it is raining.

So we were able to also fortuitously and opportunistically -- and we're happy to announce it on the call today -- actually extend that cover another year, which is almost unprecedented, to July 2011.

That's excellent. Thank you for that. Two other questions before I turn it over.

One, a lot of people talk about the banks and the commercial lenders. Can you share with us what your opinion is of how some of the more traditional shipping lenders are viewing the current market turmoil? I mean do they recognize and have they seen not necessarily seen the current challenges before, but have they seen temporary disruptions in the market before? And do they view this, in your view, as something that is temporary or something that is maybe cause for a greater concern?

I think it's -- and again you are touching, I think, on all of the important themes. Just like there are many different kinds of charters, there are many different kinds of banks. I think banks who have a tradition of lending into the maritime market whether it's anchors, containers, dry bulk are seasoned bankers who are used to seen volatility in the shipping markets.

The corollary to that is that they -- just like we do our due diligence on who our charters are, the bankers who have been banking the shipping industry for decades do a lot of homework on who they lend to. So basically the shipping banks that have been doing this for a while tend to choose the ship owners that have a good track record and a good management of being able to manage through cycles.

So, again, the important thing is banks don't want to be ship owners. They want to be lenders to the industry and I think many of these bankers have seen these kinds of markets before, albeit the credit crisis is a new wrinkle for all of us. But I believe these banks will work with their good owners through the cycle. We have seen that before.

Perfect. Thank you very much. That's all I had.

Natasha Boyden with Cantor Fitzgerald.

Good morning. Just some specific questions regarding Eagle. I think there was a paragraph in your press release that I don't think I've seen before, regarding your dividend. And given current market conditions and your need for liquidity with upcoming Eagle deliveries, what are you thinking regarding the dividend? Have you possibly considered decreasing the dividend?

Your yield right now is, I think, somewhere up in the 20% range. What are your thoughts there? Are you feeling perhaps you are not getting any credit for it? You feel that perhaps you might decrease it in order to give yourself more liquidity there? Just curious, given the paragraph that you had in the press release there.

I welcome all these questions. I think these questions are all central to the market and central to shareholders and we welcome the opportunity to discuss this. Yes. We did put that paragraph in. We think -- well, first of all, let me comment.

We are very, very disappointed at the yield on the stock. We feel in one sense that the market is throwing our dividend back in our face. And we came out to give the market a yield and we feel the market is throwing that back at us.

That being said, we are maintaining a dividend policy that's effectively been in place quarter after quarter. And what I want to do is review that for everyone today.

The policy of the Company regarding the dividend is to review it every quarter. We've done that in the past as everyone knows and, basically, we will make a determination in the next quarter and subsequent quarters as we have for this quarter and prior quarters that, at the end of the quarter, we will make -- we will see a view of the market and make a determination for the dividend and what we feel is the best long-term interest of the shareholders.

I think that it's really that simple. You have known us for a couple of years. We are a very transparent company and we thought it was prudent to advise the market of that -- or let me put it this way -- remind the market. I think that is the more appropriate way of characterizing it.

I suppose, so does that mean if the market is discounting it so dramatically which it appears to be doing, would that mean that you might cut it?

I think it's way too early to entertain those kind of thoughts. I think we are right now in a very -- I would say a little bit going back to Doug's prior questions, I feel the market right now is still in a period of trying to digest not only the sharp drop in liquidity in the global markets, but also digest these emergency measures that are being done by governments around the world.

Everyone is trying to assess the effectiveness of all of these measures. And I think in the next couple of weeks, in the next couple of months, we will have a much clearer picture. So I am really not ducking your question because I don't think that would be fair, but I'm giving you literally my honest opinion from November 6th what I can tell you our view is on the dividend.

I think in the next couple of weeks we will have a lot of clarity. You guys, we will all collectively have a lot more clarity on the state of the world and the state of the dry bulk market. And that's really I'm just giving you an honest opinion.

I appreciate that. I don't feel you are ducking it at all. I think it's a difficult situation. I mean if the market is discounting your dividend and you know paying out -- looking at a 20% yield which appears somewhat very strange, such a high yield, it seems somewhat unfair especially for a company such as yours.

But moving on, what do you estimate your CapEx requirements are for the remainder of 2008 and 2009? Do you feel that you have significant liquidity to pay for these new buildings as they come up for delivery and sustained your current fleet operations?

What we give in our Qs and what people will see in this Q will be no different from prior Qs is CapEx requirements of the Company. And what I want to highlight here is every company, all of the dry bulk companies have very different CapEx requirements, different programs, different growth profiles.

I think one of the -- I think there are two characteristics of Eagles CapEx requirements that are dramatically different from everyone else's. And let me highlight that.

One is, we have an incredibly long CapEx program. In other words, we don't have all of our expenditure for growth in the next 12 months. We have it in the next four years through 2012 which is an incredible release valve for the Company's cash flow in today's volatile market.

The other thing that I think is incredibly important to remind everyone today, when they talk about CapEx or they look at number of ships coming into a company's fleet is not only do you have to look at, is it all coming into the company in 12 months versus 48 months, but what did the company -- how did the company secured those ships?

We actually were fortunate to have contracted all of our new builds at times before vessel values ran up. So our ship prices for our ships were not the premium valuations that other companies were paying to secure prompt deliveries. Now if you look at the two together, it creates a much more relaxed CapEx expenditure profile that is easier to handle for Eagle than maybe for others.

And then what we did, again, Natasha, you know us to be conservative guys here, we did not go and start buying assets grossly outside of the ability of our financing capabilities to actually fund them. So if you map out our CapEx over the next four years -- and I want to, again, say it's four years not one year -- and you look at what our financing capabilities are for the CapEx, excluding any internally generated cash flow which we will have, we think we are in a very good position.

Okay, but can you give us an estimate what it is for 2009?

I know the total amount is roughly about $900 million. If you want to call us after this call we will give you exactly 2009.

Great. Thank you.

I don't have it in front of me right now.

That's fair enough. Lastly we have been hearing news that several companies and, certainly, at least one of your peers recently have been walking away from new building orders. Given current market environment and declining asset values is that something that you would or if you even can consider doing? Are you pretty content with the way that your orders coming in stand at the moment?

I think part of the answer to this question lies in my answer to your prior question which is, our vessels were contracted at about 50% of what these ship values were earlier this year. So that gives us a level of comfort.

And, also, we do not expect the market to stay depressed like this for four years. So our view on our new build program especially since we have some ships delivering all the way in the outer years doesn't make us as concerned as maybe as some other companies would be.

I think the very important thing to remind everyone, again, a lot of ship new builds were ordered speculatively with no charter cover. We have 21 of our new builds have long, long charter contracts attached, ensuring the revenues we -- ensuring that the new builds that we've contracted have revenues streams associated with them to maintain a conservative profile on the Company.

So I think those characteristics really set us apart from what the market is saying about other people who are doing speculative ordering at higher prices.

Now on to something (inaudible) really. Soph, you've talked a lot about coastal trade in Asia a lot in the past. And given that we are hearing a lot about slow growth in China, given the economic crisis, can you tell us how this has affected coastal shippings? I know you've said that that's been your sweet spot in the past.

Yes. And I have said that in the past. And I just want to remind everyone that the coastal trade that I was referring to is really to China and India. And I want to explain for everyone because there are some very distinct differences between Chinese coastal trade for Eagle Bulk and Indian coastal trade.

We are indirect beneficiaries of Chinese coastal trade because Chinese coastal trade takes Chinese flag ships into that trade. We occasionally directly benefit by getting dispensations to allow non-Chinese flag ships to trade in that market. But the primary benefit for Eagle Bulk for Chinese coastal trade is that it removes Chinese ships from the open market.

Turning to India, India is more flexible than China so there we are able to directly participate in Indian coastal trade. Now with that explanation, no surprises here. The coastal trade market is not showing any inherent sharp increase or sharp decrease currently. I think what we're seeing is more of a wait and see approach to the market. I think a lot of people are trying to wait and see what will happen with the Chinese in 2009.

So I think what we're seeing right now is, we have a little less than two months left in 2008, as you are seeing what I call a runoff in cargoes. In other words, old cargoes are just finishing their old commitments and we will have a better view for you on the update on coastal trade, probably the very beginning of next year.

Great. Thank you very much.

Seth Glickenhaus with Glickenhaus & Company.

I want to congratulate you on a good quarter. The only question that I have left, all of my questions, many of my questions have been answered is this. I believe, and my memory may be wrong, one of your lead banks that extended credit was the Royal Bank of Scotland?

Yes, that's correct.

And they seem to have some problems when stock is around 1 or (inaudible) something like that. I was wondering what your current relations with them are? They, I believe you had some potential credit extension in the future. And what is the status of all that?

Sure. Let me first explain for everyone on the call that we have an extremely good, excellent relationship with our lender. Royal Bank of Scotland is in our opinion one of the the -- or actually the premier lending bank to the maritime industry.

They have been doing this for over 100 years. We talk to them all the time. I understand and appreciate your comments regarding what has happened to their common equity. However I think -- and this is my humble opinion and you probably are better to tell me than I tell you -- but I think with the government's preferred shares coming in, that may have put pressure on the common equity.

But conversely Bank of England support actually if anything makes Royal Bank of Scotland in my humble opinion a much better lender than previously. Now much to the detriment of the common equity.

Right. Thank you. I guess that gives me the answer.

Urs Dur with Lazard Capital Markets.

Good morning. I guess I'm still very interested in the leverage here going forward. Can you indicate to us what market-based leverage covenants you have loan to value [VMCs] going forward and when they kick in?

The loan to value which is of course disclosed I believe 130% -- (multiple speakers) in terms of when it kicks in or not and I think it is very important for people to know that this is a standard of shipping loan. It's pretty plain vanilla so it's not that it kicks in at different levels, it is just kind of there.

I understand that, but in terms of when are the valuations coming. And then, maybe this is sort of a secondary question can you comment on the valuation conundrum that we all see today with valuing ships and what's your view there?

I think you hit on a very good question that is important for people to understand. And I think it all stems off of this unprecedented credit freeze we've seen. When I lived through the markets in the '80s and I lived through the markets in the '90s, you might have had a depressed shipping market, but you had a functioning banking system.

What you have here, and in prior market downturns, you had the fundamental supply demand equation in dry bulk actually affect rates negatively. This is a very different situation where you had healthy demand that was abruptly one day just stopped short because of a failed global banking system. So we're sort of charting new waters here.

Yes. It is a very unique situation.

Yes, unique, I think is a very good way to characterize it. So even though in the last 25, 30 years in other downturns, ships have traded. You've seen sales occur.

Because we are in this unique situation, as you described it, ships are really not trading because people don't know what this all this quite means. And you have, as people I think have come to know and probably heard on other earnings calls, you have had brokers really resist giving valuation certificates.

And even if they made one it would be disputed wouldn't it?

Here's my view. My prediction -- and I hate giving predictions -- is that the first couple of sales, because eventually the ships are going to start trading hands, will be special situations not indicative of the broader market.

I will give you an example. Maybe some ships trade where charters had chartered ships in a couple of years ago and had negotiated very low purchase options. Maybe the ships are 10-year-old ships and they have purchase options at ridiculously low levels, and the charters who -- because they need cash flow for reasons independent of having an owned fleet, because their core business might be a cargo trading platform not a shipowning company is, they will just blow out those assets at whatever price in excess of their purchase options. They'll book a profit and they will sell it into the open market.

All the brokers will pick up those reports. It will be heralded as some kind of new benchmark for the industry. But I can tell you that the majority of ship owners who are ship owners not cargo owners will as -- and I think you correctly touched on it will dispute it and say, rightly so, that these are not indicative of the market.

Now I want to bring this specific to Eagle. That's my comment on the broader market. Specific to Eagle, we are in a very unique situation. Okay?

So if you take a ship that's whatever vintage and goes on the market for sale and has a charter-free position, that's one thing. But it's a very different thing with an Eagle ship that has a long-term revenue stream that's insured. That's a totally different equation that I believe should ascribe a very different valuation to an Eagle ship versus a charter-free ship.

Can I just jump in quickly just to ask, in that regard, I mean there are some companies especially on the container long-term ship leasing side where the loan to value or VMC clauses are attached to the charter being in effect.

Are you -- do your VMCs consider the charters being in effect for your ships? Or are they just simply charter-free steel values?

Okay, I think the way it works is you have a charter-free situation but I think banks looking that we are in an unprecedented time will talk with owners that have special unique arrangements, in light of the market that we are currently experiencing.

Yes. I tend to agree. I think the banks' unique position, both the hunter and the prey, are wounded at this time. The banks don't need to start crushing the asset class that feeds them. So I think that's an interesting time right now. All right. Thanks.

I guess you mentioned this before, but I want to throw something out to you. If you see an increase in spot-chartering volumes, not necessarily in spot-chartering rates and an increase in the [BDI], but just in the volumes and transactions done, is that a fair indicator to you that letters of credit are creeping back into the market in a more traditionally healthy manner than we are experiencing today?

I would tend to say yes. And I would also tend to say it's an indication that more cargoes are coming on the market. And I know that some people on the call track volumes and will probably have noticed in the last day or so there has been an increase in the volume of activity.

Now, I think it's too early to tell the longevity of it. But I'm giving everyone on the call today a snapshot that in the last two days there has been a pickup in volume.

Yes. You mentioned the insurance. I think it's great it is now extended to 2011. Is your premium going up still as affordable as in the past? Can you remind us what the premium is equivalent annually? And how much did your extension cost you?

I just have to qualify on the call today that I have to be a little careful here because we are sort of bound by certain confidentiality in the contracts. We also view that it would really damage us vis a vis our chartering relationships and our other competitors to give too much information on this product.

But we -- I can say on the call that we were very fortunate to have an incredible relationship with the underwriter. We sat down, had a reasonable talk and I think came up with a very reasonable premium.

I guess you are not very concerned about the solvency of the insurance then? The company --?

No. They're A rated. That we can give out. (multiple speakers)

So A rated.

Yes.

All right and just a quick backup question and it's just a matter of point. You mentioned again before and I think it is really valuable for investors to see that, that a vast majority of your CapEx was purchased not necessarily at the peak of the market, but some time ago. The leverage on that was based still on the purchase price. There wasn't further leveraging up against enhanced values at a later date in any way. was there?

No, no. And I think you actually -- you are getting into some very interesting points in the dry bulk market which is, in the past, people have bought ships cheap like we did, asset values run up in a meaningful way. And they try and use the appreciation on asset values to get access to more liquidity from their banks.

I would just like to confirm on the call today, being conservative as you know us to be, we did not do that. We just took out what we thought was appropriate leverage at the asset prices when we bought the ships before the run-up and valuations occurred in the last two years or year and a half.

Great. That's what I suspected. Just wanted to reconfirm. Thanks for your time.

Omar Nokta with Dahlman Rose.

I just had a couple of questions. The first one, just talking about the uncertainty in ship prices. We saw yesterday a couple of ship brokers reporting an '04 built Panamax selling for $30 million. That seems a bit low compared to what we have seen in the past or obviously that is also compared to recent assessments.

Do you know if that was a one off or do you know anything about that sale?

My understanding from that, and we will see I think in a couple of days, the substantiation of that transaction because that was a charter-free deal. Which sort of links to my earlier question that if you have the chartered ship in today's market with a reasonable counterparty, you are going to get a different value in an arm's length transaction than you are from a charter free ship which will have a much lower value. So I think that is very important for people to recognize that distinction, call and my understanding of what maybe transpired with this one off transaction is that it was a charter-free deal.

I just have one other question. It was on that same paragraph that Natasha was asking about, with respect to the dividend. It also discusses potential need for some new debt or new equity on the balance sheet. And I know you said that things right now you are uncertain that maybe in three months [we'll] have more answers.

Do you think, based off of where we are today and if things haven't improved by year-end, that you would need to issue some more equity?

I think it's difficult to answer a hypothetical sort of "what if" question, but listen. I think in putting that wording in, we are obviously going to give the Company the broadest latitude possible, but I think, as I said and I think it was asked by a couple of people earlier in the call, I believe the next couple of weeks, the next couple of months are going to be very important for the dry bulk market to get directionality in what's going on with charter rates, asset values and all of the things that people have been asking today.

I think it's -- let's put it this way. I believe next quarter's call, Eagle management will be able to speak with much more conviction and the reason you hear me hesitating is because I feel it is better to say I don't know honestly to people on the call today rather than to give some answer that I feel you may want to hear.

I just -- people who know me know that I am a pretty straight shooter. And I really don't know.

Totally understood and it makes sense. I just wanted to doublecheck in with Royal Bank of Scotland. So far things are still fine between you and them? And are you seeing any pressure from them in any way?

No pressure whatsoever.

Great. Thanks.

(Operator Instructions) Ladies and gentlemen, for the rest of the Q&A session, we need to limit the questions to one question per person and one follow-up. Thank you.

Jon Chappell with JPMorgan.

I will keep these quick. The charter renewals, typically we've modeled one-year and three-year mix, given your more conservative strategy would giving some longer-term contracts. Given the way the market is right now and the softness probably in the longer-term contracts, if not the lack of long-term contracts, how should we think about contract renewals for your ships or unchartered new builds for the next couple of months? Should we think shorter term type employment?

I think that's a great question. And I would say the way we look at it internally -- and I will share that with people on the call today -- is that we always look at the spread differential between different durations of charter rates.

Look to us to pretty much do time charters because we like those, because we don't take a lot of the exposures that voyage-based charters take such as fuel costs and things like that. So what we liked before was that you had the spread between call it one-, two-, three-year charters and spot market was that one-, two-, three-year spread was higher for those charters. So we went into that market.

I think in the next couple of weeks or months as we see -- if we seek a pickup in activity, if liquidity comes back in and we see shorter charters actually come up or surpass, let's use the benchmark as a one-year charter rate. Don't be surprised if (multiple speakers). Hello?

Hello.

Sorry there was an interruption on the call. I don't know what that was, but it wasn't from Eagle.

It wasn't from here, either.

It wasn't from our office. Anyways that being said I think back to the charter rate question, we are going to make a determination and is the -- I will say that if we see that the market is weak and we feel optimistic about one-, two-, three-year rates picking up in the short term, don't be surprised if we reposition a ship or two so we can buy time to get into a better market.

That's the one new piece of information that I would give people on the call today.

And then the follow-up, just on the current structure of your new building contracts. And I know you said that the contract prices are good and you wouldn't walk away right now. But just if you had to walk away, are your down payments in for these ships in debt or in cash? And if you had to walk away would you get the deposits back or would you have to forfeit those?

I think those are sort of very "what if" questions that are very difficult to answer on the call. What I can say is we have a very good relationship with our shipyard. The shipyard is -- both shipyards, both in China and Japan are performing absolutely flawlessly. We do have progress payments down.

But I would just like to remind everyone that they were put in and the ships were contracted at times when levels were about 50% what they were earlier in the year.

So our view on our new build program -- and I don't want to be cavalier by saying it's relaxed, but I would just say, I will qualify it by saying it's different than if we had ordered all of our new bills in the middle of the summer and paid big premiums for those positions. We in fact didn't pay big premiums for our new builds.

Charles Rupinski with Maxim Group.

Good morning. One question is, you disclosed or you -- on the presentation talked about the first quarter, I think, is 88% chartered. Do have a rough number for the full year for '09 on that?

It's roughly (inaudible) it's about 60, 60 plus percent. You of course know this. But I just want to tell other people on the call that there is -- all charter party contracts have an earliest redelivery and a latest redelivery to allow charters to reposition and not be stuck to a certain day. So it's give or take around 60%. Maybe a little more but about 60%.

Thank you very much. Congratulations on the quarter.

Chris Wetherbee with Merrill Lynch.

Good morning. I'm just going to touch briefly again on asset prices and I guess, Soph, you had mentioned you think it's a little bit of the difference in evaluation, relative to the charters attached to the vessels. Just wondering if you had seen any impact whether it has been positive or negative, obviously, depending on where the market rates were at the time when you've had previous asset valuations?

The interesting thing about charters is sometimes they are good for you and sometimes they are bad for you. Obviously, when the market is really booming and really high, having a charter is seen as a drag to a potential buyer. So in that -- in the higher market, selling a ship with a charter attached in an arms length transaction which is all that -- in all of the discussion I am going to have answering your question it's, I'm always talking about arms length transactions.

You are not only limiting your ability to sell the ship because someone wants a charter for reposition, but you're maybe getting fewer buyers. Now what maybe hurt us in a stronger market in terms of asset valuations actually helps us in current market because not only does the cash flow, the security of cash flow give comfort to a buyer to want to acquire your vessel, but gives comfort to a lender to want to lend to the ship owner to buy your ship. Because it has an ascribed charter attached.

I would say its further highlight in terms of valuation by the insurance, but I would like to just say to people on the call that we are generally -- people come to know us as not being speculative asset players. And we are generally looking at a long-term value proposition of building a long-term presence in the dry bulk market.

So don't look at us to flip in and out of ships where these issues would be as relevant, because we are not in the market to start dumping our fleet.

I guess, just on that point, have you seen any difference in valuation when you had previous valuations done on your fleet based on charters?

It hasn't really come up because we don't normally ask for valuations and the bank valuations are very standard.

I guess the follow-up would be, do you know when your next valuation is scheduled to occur from a bank perspective?

They are generally quarterly.

Thanks for the time.

I mean that is like an industry [too]. Thank you.

Scott Burk with Oppenheimer.

Good morning. I wanted to ask about the mechanics of the charter hire insurance that you have. If you had a charter come to you and want to renegotiate a charter, would the charter insurance cover the difference and if a charter defaulted altogether would it mean that you received the full value of that insurance as a lump sum? Or would you receive it over the time of that charter?

Good questions and I'm actually going to -- My answer lies in what I said on a previous question to this point which is, the insurance is something that's in place. We are not prepared on the open call to get into details because it obviously will hurt the company vis a vis its chartering relationships. And we are not prepared to do that today.

Okay. Maybe I can get a little more color later. Then if -- one other thing I wanted to ask was -- most of my other questions have been answered. Thanks.

Justin Yagerman.

Good morning. This is [Mike Weber] filling in for Justin.

Just a couple of quick questions I wanted to run by you. First on the market value to loan covenants. I know this is something obviously we take a look at on our own but I'm sure some of you guys look at it internally as well. And I was hoping you guys could maybe give a little color as to A., where do you think you stand right now on your market value to loan covenants and exactly how that appraisal process works.

I know you said the banks typically value those quarterly and I think you also indicated that they are actually done on a charter-free asset basis. So when exactly are those appraisals are going to get done and whether or not you actually have any input into any of those vessel appraisals as to whether you are actually submitting them or not?

First of all, I would like to remind everyone and clarify that we are 100% in compliance with all of our covenants which should be no surprise to anyone on the call today. And the way the valuations are normally done is, there's a list of approved brokers and a broker gives a valuation list and that's then presented to the bank and to the ship owner. And we've had no problems to question any certificate. So there's never been an issue.

Can you give us guidance as to how far above your covenant you currently are?

No, we don't give that out on the call.

I guess another question related to G&A. For the quarter it looked like it's up, I guess 324% year-over-year, 40% sequentially and coming in at about 13% of net of revenue. I guess if you guys can give some color as to the rationale for that ratcheting up to that degree and run rates going forward?

I think I've given good guidance probably for the last two quarters and we've prepared the market for this by saying that the only prudent course a ship owner, an office that single-handedly supervised a new build program because we are not outsourcing our new build supervision, we are doing it in-house. It would be very easy for us if we had third party management of our new builds to maybe carve out a separate line item on our financials and make it look like our G&A was lower because we are outsourcing our supervision.

We are not doing that. We have a robust office in China which not only gives us -- bringing in these ships on cost, on schedule and better quality ships, and maintaining good relationships with those shipyards but also having offices in China and Japan as we currently do is giving us incredible market insight into what is going on in the chartering markets and the commodity markets in the Asian Basin currently which is especially useful today.

So given that the fleet is growing to CG&A growing in advance of the fleet growing is not only appropriate, but prudent.

I will now turn the conference over to Sophocles Zoullas for closing remarks. Please proceed.

Okay. Close on my name but not quite.

Sorry.

No problem. I would like to thank the operator and everyone on the call today for joining us for our third quarter earnings call and review of our results. And we look forward to keeping you updated of new developments in the future. Thank you very much, everyone.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a good day.